In a centralized economy, currency is issued by a central bank at a rate that is supposed to match the growth of the amount of goods that are exchanged so that these goods can be traded with stable prices. The
monetary base is controlled by a central bank. In the United States, the Fed increases the monetary base by issuing currency, increasing the amount banks have on reserve or by a process called Quantitative Easing.

In a fully decentralized monetary system, there is no central authority that regulates the monetary base. Instead, currency is created by the nodes of a peer-to-peer network. The Bitcoin generation algorithm defines, in advance, how currency will be created and at what rate. Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless.

Currency with Finite Supply

Block reward halving

Controlled supply

Bitcoins are created each time a user discovers a new block.
The rate of block creation is adjusted every 2016 blocks to aim for a constant two week adjustment period (equivalent to 6 per hour.) The number of bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 210,000 blocks, or approximately four years. The result is that the number of bitcoins in existence will not exceed slightly less than 21 million.[2] Speculated justifications for the unintuitive value "21 million" are that it matches a 4-year reward halving schedule; or the ultimate total number of Satoshis that will be mined is close to the maximum capacity of a 64-bit floating point number. Satoshi has never really justified or explained many of these constants.

This decreasing-supply algorithm was chosen because it approximates the rate at which commodities like gold are mined. Users who use their computers to perform calculations to try and discover a block are thus called Miners.

* In Block 124724, user midnightmagic mined a solo block to himself which underpaid the reward by a single Satoshi and simultaneously destroyed the block's fees. This is one of two only known reductions in the total mined supply of Bitcoin. Therefore, from block 124724 onwards, all total supply estimates must technically be reduced by 1 Satoshi.

Projected Bitcoins Long Term

Supply timeline estimation

Because the number of bitcoins created each time a user discovers a new block - the block reward - is halved based on a fixed interval of blocks, and the time it takes on average to discover a block can vary based on mining power and the network difficulty, the exact time when the block reward is halved can vary as well. Consequently, the time the last Bitcoin will be created will also vary, and is subject to speculation based on assumptions.

If the mining power had remained constant since the first Bitcoin was mined, the last Bitcoin would have been mined somewhere near October 8th, 2140. Due to the mining power having increased overall over time, as of block 367,500 - assuming mining power remained constant from that block forward - the last Bitcoin will be mined on May 7th, 2140.

As it is very difficult to predict how mining power will evolve into the future - i.e. whether technological progress will continue to make hardware faster or whether mining will hit a a technological wall; or whether or not faster methods of SHA2 calculation will be discovered - putting an exact date or even year on this event is difficult.

The total number of bitcoins, as mentioned earlier, has an asymptote at 21 million, due to a side-effect of the data structure of the blockchain - specifically the integer storage type of the transaction output, this exact value would have been 20,999,999.9769 bitcoin. Should this technical limitation be adjusted by increasing the size of the field, the total number will still only approach a maximum of 21 million.

Block

Reward Era

BTC/block

Start BTC

BTC Added

End BTC

BTC Increase

End BTC % of Limit

0

1

50.00000000

0.00000000

10500000.00000000

10500000.00000000*

infinite

50.00000006%

210000

2

25.00000000

10500000.00000000

5250000.00000000

15750000.00000000

50.00000000%

75.00000008%

420000

3

12.50000000

15750000.00000000

2625000.00000000

18375000.00000000

16.66666667%

87.50000010%

630000

4

6.25000000

18375000.00000000

1312500.00000000

19687500.00000000

7.14285714%

93.75000010%

840000

5

3.12500000

19687500.00000000

656250.00000000

20343750.00000000

3.33333333%

96.87500011%

1050000

6

1.56250000

20343750.00000000

328125.00000000

20671875.00000000

1.61290323%

98.43750011%

1260000

7

0.78125000

20671875.00000000

164062.50000000

20835937.50000000

0.79365079%

99.21875011%

1470000

8

0.39062500

20835937.50000000

82031.25000000

20917968.75000000

0.39370079%

99.60937511%

1680000

9

0.19531250

20917968.75000000

41015.62500000

20958984.37500000

0.19607843%

99.80468761%

1890000

10

0.09765625

20958984.37500000

20507.81250000

20979492.18750000

0.09784736%

99.90234386%

2100000

11

0.04882812

20979492.18750000

10253.90520000

20989746.09270000

0.04887585%

99.95117198%

2310000

12

0.02441406

20989746.09270000

5126.95260000

20994873.04530000

0.02442599%

99.97558604%

2520000

13

0.01220703

20994873.04530000

2563.47630000

20997436.52160000

0.01221001%

99.98779307%

2730000

14

0.00610351

20997436.52160000

1281.73710000

20998718.25870000

0.00610426%

99.99389658%

2940000

15

0.00305175

20998718.25870000

640.86750000

20999359.12620000

0.00305194%

99.99694833%

3150000

16

0.00152587

20999359.12620000

320.43270000

20999679.55890000

0.00152592%

99.99847420%

3360000

17

0.00076293

20999679.55890000

160.21530000

20999839.77420000

0.00076294%

99.99923713%

3570000

18

0.00038146

20999839.77420000

80.10660000

20999919.88080000

0.00038146%

99.99961859%

3780000

19

0.00019073

20999919.88080000

40.05330000

20999959.93410000

0.00019073%

99.99980932%

3990000

20

0.00009536

20999959.93410000

20.02560000

20999979.95970000

0.00009536%

99.99990468%

4200000

21

0.00004768

20999979.95970000

10.01280000

20999989.97250000

0.00004768%

99.99995236%

4410000

22

0.00002384

20999989.97250000

5.00640000

20999994.97890000

0.00002384%

99.99997620%

4620000

23

0.00001192

20999994.97890000

2.50320000

20999997.48210000

0.00001192%

99.99998812%

4830000

24

0.00000596

20999997.48210000

1.25160000

20999998.73370000

0.00000596%

99.99999408%

5040000

25

0.00000298

20999998.73370000

0.62580000

20999999.35950000

0.00000298%

99.99999706%

5250000

26

0.00000149

20999999.35950000

0.31290000

20999999.67240000

0.00000149%

99.99999855%

5460000

27

0.00000074

20999999.67240000

0.15540000

20999999.82780000

0.00000074%

99.99999929%

5670000

28

0.00000037

20999999.82780000

0.07770000

20999999.90550000

0.00000037%

99.99999966%

5880000

29

0.00000018

20999999.90550000

0.03780000

20999999.94330000

0.00000018%

99.99999984%

6090000

30

0.00000009

20999999.94330000

0.01890000

20999999.96220000

0.00000009%

99.99999993%

6300000

31

0.00000004

20999999.96220000

0.00840000

20999999.97060000

0.00000004%

99.99999997%

6510000

32

0.00000002

20999999.97060000

0.00420000

20999999.97480000

0.00000002%

99.99999999%

6720000

33

0.00000001

20999999.97480000

0.00210000

20999999.97690000

0.00000001%

100.00000000%

6930000

34

0.00000000

20999999.97690000

0.00000000

20999999.97690000

0.00000000%

100.00000000%

Note: The number of bitcoins are presented in a floating point format. However, these values are based on the number of satoshi per block originally in integer format to prevent compounding error.

* In block 124724, user midnightmagic solo mined a block which caused one less Satoshi to be created than would otherwise have come into existence. Therefore, all calculations from this block onwards must now, to be accurate, include this underpay in total Bitcoins in existence. Then, in an act of sheer stupidity, a more recent miner who failed to implement RSK properly destroyed an entire block reward of 12.5 XBT in block 501726.

What happens when all the bitcoins are mined?

The bitcoin inflation rate steadily trends downwards. At the time of writing, more than 3 out of every 4 bitcoins that will ever exist have already been mined, and the annual inflation rate is just 4%. The block reward given to miners is made up of newly-created bitcoins plus transaction fees. As inflation goes to zero miners will obtain an income only from transaction fees which will provide an incentive to keep mining to make transactions irreversible.

Due to deep technical reasons, block space is a scarce commodity, getting a transaction mined can be seen as purchasing a portion of it. By analogy, on average every 10 minutes a fixed amount of land is created and no more, people wanting to make transactions bid for parcels of this land. The sale of this land is what supports the miners even in a zero-inflation regime. The price of this land is set by demand for transactions (because the supply is fixed and known) and the mining difficulty readjusts around this to keep the average interval at 10 minutes.

Spendable Supply

The theoretical total number of bitcoins, slightly less than 21 million, should not be confused with the total spendable supply. The total spendable supply is always lower than the theoretical total supply, and is subject to accidental loss, willful destruction, and technical peculiarities.

One way to see a part of the destruction of coin is by collecting a sum of all unspent transaction outputs, using a Bitcoin RPC command gettxoutsetinfo. The total_amount value returned is the sum of all outputs that the client deems technically spendable but not currently spent. Note however that this does not take into account outputs that are exceedingly unlikely to be spent as is the case in loss and destruction via constructed addresses, for example.

Miner Underpay

The algorithm which decides whether a block is valid only checks to verify whether the total amount of the reward exceeds the reward plus available fees. Therefore it is possible for a miner to deliberately choose to underpay himself by any value: not only can this destroy the fees involved, but also the reward itself, which can prevent the total possible bitcoins that can come into existence from reaching its theoretical maximum. This is a form of underpay which the reference implementation recognises as impossible to spend. Some of the other types below are not recognised as officially destroying Bitcoins; it is possible for example to spend the 1BitcoinEaterAddressDontSendf59kuE if a corresponding private key is used (although this would imply that Bitcoin has been broken.)

Loss of bitcoin

Bitcoins may be lost if the conditions required to spend them are no longer known. For example, if you made a transaction to an address that requires a private key in order to spend those bitcoins further, had written that private key down on a piece of paper, but that piece of paper was lost. In this case, that bitcoin may also be considered lost, as the odds of randomly finding a matching private key are such that it is generally considered impossible.

Willful destruction of bitcoin

Bitcoins may also be willfully 'destroyed' - for example by attaching conditions that make it impossible to spend them.

A common method is to send bitcoin to an address that was constructed and only made to pass validity checks, but for which no private key is actually known. An example of such an address is "1BitcoinEaterAddressDontSendf59kuE", where the last "f59kuE" is text to make the preceding constructed text pass validation. Finding a matching private key is, again, generally considered impossible. For an example of how difficult this would be, see Vanitygen.

Another common method is to send bitcoin in a transaction where the conditions for spending are not just unfathomably unlikely, but literally impossible to meet. For example, a transaction that is made provably unspendable using OP_RETURN, or uses script operations that requires the user to prove that 1+1 equals 3.

A lesser known method is to send bitcoin to an address based on private key that is outside the range of valid ECDSA private keys. For example, the address 16QaFeudRUt8NYy2yzjm3BMvG4xBbAsBFM has a known matching private key of value 0 (zero), which is outside the valid range.

Technical peculiarities preventing spending of bitcoin

There are also technical peculiarities that prevent the spending of some bitcoin.

The first BTC50, included in the genesis block, cannot be spent as its transaction is not in the global database.

In older versions of the bitcoin reference code, a miner could make their coinbase transaction (block reward) have the exact same ID as used in a previous block[3]. This effectively caused the previous block reward to become unspendable. Two known such cases[4][5] are left as special cases in the code[6] as part of BIP 0030 changes that fixed this issue. These transactions were BTC50 each.

Money Supply

Deflation

Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used.
Keynesian economists argue that deflation is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs. The Austrian school of thought counters this criticism, claiming that as deflation occurs in all stages of production, entrepreneurs who invest benefit from it. As a result, profit ratios tend to stay the same and only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits. Price deflation encourages an increase in hoarding — hence savings — which in turn tends to lower interest rates and increase the incentive for entrepreneurs to invest in projects of longer term.

See also

Milton Friedman interview, where he proposed to replace the central bank with a computer, and to fix the money supply growth at 4% annually